Everybody struggles financially at some point in their life. After working hard to regain financial stability, many of us are hesitant to use credit cards again. However, credit cards are a necessary tool to build credit ratings and qualify for significant loans like mortgages. The trick is learning how to use them wisely. Here, we provide tips to use a credit card wisely and avoid falling into the debt trap again.
Choosing the Right Credit Card
Picking the right credit card is the first step towards wise usage. Opt for one with a manageable limit. This will help control your expenditure and make it easier to resist other credit card offers.
Remember: One card is sufficient to build a good credit score.
Planning Your Purchases: The Key to Avoid Temptation
Next, discipline your spending habits. Save money for your purchases ahead of time. Avoid carrying your credit card when shopping to resist the temptation of unplanned spending. Use the card only for planned buys and pay off the bill as soon as it arrives.
Remember: A planned purchase is a wise purchase.
Setting an Automatic Spending Limit
Select a specific type of purchase for your credit card that has an automatic spending limit, such as fuel. If you’re apprehensive about overspending, avoid using the card for retail transactions. Instead, set up a preauthorized charge that deducts a fixed amount each month, like a subscription or gym membership.
Paying Off Your Credit Card Every Month
Strive to clear your credit card bill in full every month. If you’re unable to do so one month, refrain from using the card until it’s fully paid off. Seek the help of a friend or family member to keep you accountable and help you stick to your plan.
Building a Positive Credit Rating
You don’t need multiple credit cards, high credit limits, or large purchases to establish a positive credit rating. Use the financial skills you’ve acquired while living without credit cards to use your new card wisely. Here are some tips to use a credit card wisely and build a strong credit score:
Timely Repayment: Pay your credit card bill in full and on time each month.
Credit Utilization: Keep your credit utilization low. It’s recommended to use only 30% of your credit limit.
Credit History: Maintain a long history with your credit card. The longer you have a card, the better it is for your credit score.
Types of Credit: Have different types of credit like installment loans, retail accounts, and mortgages.
New Credit: Do not open too many new credit accounts at once.
In conclusion, credit cards are not a menace if used judiciously. All you need is a bit of discipline, planning, and the tips to use a credit card wisely mentioned in this article. Remember, it’s not about avoiding credit cards altogether but learning to use them to your advantage. Happy spending!